Hulu: Premium Content Only

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For Studios, Content Control

Advertising on Hulu is refreshingly minimal. Full-length television episodes have a single sponsor. Users see a brief, 7- to 10-second message at the beginning of the show naming the sponsor and one 30-second commercial embedded in the show. There is also a sponsor banner advertisement affixed to the player.

Still, there are several challenges for creating a one-stop site for premium content. The first is convincing competing media companies to contribute content to the site. That obstacle has proven somewhat easier to overcome for online media companies such as Yahoo than for NBC and News Corp.'s Hulu. While many media companies distribute their content on well-trafficked sites such as Yahoo, NBC and News Corp.'s broadcast rivals—namely CBS (CBS) and Disney's (DIS) ABC—have yet to sign on with Hulu. Hulu did, however, secure content deals with Sony (SNE) and MGM (MGM).

The second obstacle is getting people to visit a particular site rather than the many other places on the Web where they can see the same shows. This is one obstacle Hulu's Kilar says he doesn't care to conquer. A goal of Hulu is to put the control of online content back in the studios' hands. The Hulu player enables its media parents and partners to control what advertising appears alongside their content and monitor where the programming is watched, regardless of which site—be it Yahoo, AOL, Microsoft's MSN, or any other site—is hosting the show. As far as Hulu and its parents are concerned, it doesn't matter where viewers watch the shows and their ads. It just matters that they watch.

No Hulu Hard Sell

Of course, Hulu doesn't have to share the revenue with Yahoo or another partner if a user watches on Hulu. But Kilar says the revenue-sharing deals with its online distribution partners are sufficiently lucrative that Hulu doesn't need to push audiences to watch on its site. In fact, one of the key features of Hulu is the ability for users to embed its players and shows in their own blogs and social network pages. "If people come to Hulu, that's fine, but we are not trying to push audiences to any one place to watch content," says Kilar.

Holahan is a writer for BusinessWeek.com in New York .